At least one suspected asylum seeker has died and another 11 remain missing, feared drowned, after their boat sank in darkness late on Sunday about 350 nautical miles north-west of the Cocos Islands.
Home Affairs Minister Brendan O'Connor said last night that, of the 39 people believed to be aboard the vessel when it sank, at least one had died.
Another 27 had been rescued, including five who spent almost 16 hours in the water, while three aircraft were searching for the remaining 11, for whom grave fears are held.
Mr O'Connor said it was a tragic situation and all efforts were being made to find all those lost at sea.
The rescued passengers remain on board the two commercial ships that were the first on the scene and continue to help the search.
Meanwhile, there have been conflicting reports about the circumstances that led to the people being in the water, with military chief Air Chief Marshal Angus Houston saying the boat capsized during the initial rescue operation.
A spokesman for Mr O'Connor later said it was not thought that the boat capsized, but sank as a commercial ship, the Bahamas-based LNG Pioneer, arrived at the scene.
Most of the survivors had been taken aboard the LNG Pioneer as the rescue efforts unfolded in the early hours of yesterday morning, while others were aboard the Taiwanese fishing vessel Kuamg, which was the first to respond.
The nearest navy ship was at least 24 hours away from the scene of the incident yesterday afternoon.
Mr O'Connor said the origin of the ship and its passengers were unknown. He declined to say if Australian authorities had tracked the vessel before the Australian Maritime Safety Authority received the distress call.
He said the vessel sank within Australia's search-and-rescue zone and survivors could be sent to Christmas Island for processing or taken to another port.
''We're still focusing on rescuing people at sea. That will continue until there is no chance of survival. We do not at this point determine whether the passengers aboard the vessel were seeking asylum.''
More than 1600 asylum seekers have arrived by boat off Australia's north-west coast this year, mostly people fleeing violence in Afghanistan and Sri Lanka.
Prime Minister Kevin Rudd said he spoke with the Sri Lankan President Mahinda Rajapaksa by phone yesterday about the outflow of refugees from the country. ''What we're faced within Sri Lanka is 260,000 people displaced because of the civil war,'' Mr Rudd said.
Trade unions have urged Mr Rudd to let 78 Sri Lankan asylum seekers in Indonesian waters on board an Australian Customs vessel, the Oceanic Viking, be processed in Australia.
But Mr Rudd said each group of asylum seekers would be dealt with on its own merits.
Meanwhile, a new poll shows most voters believe Mr Rudd's revision of the former Coalition government's border policy is to blame for a surge in asylum seekers heading to Australia.
Essential Research's poll showed more than half of those surveyed also believed there was a real prospect terrorists were among asylum seekers arriving by boat. AAP